Many taxpayers expected that the tax world would look significantly different in 2022 due to the White House’s Build Back Better plan. But with the proposal currently on hold, any major changes are on hold, too. While there’s still a possibility that Congress could pass retroactive tax measures—they’ve done it before—it looks less likely by the day. While it’s too early to know what that could mean for the current tax year, there are some changes that are making their presence known. Here’s a look at what we expect the tax world to look like in 2022.
Refunds May Be Different
Tax refunds can go up or down in any given year, depending on many factors. But those variations tend to be tied to personal circumstances. However, this year, there’s a potential for a lot of change based on advance child tax credit payments.
The credit wasn’t new but was, instead, an expanded version of the existing child tax credit. And, in a twist, the IRS began sending out payments—advances—last July. The point was to get money into the hands of taxpayers at regular intervals during the year instead of waiting for a big refund at tax time.
Here’s why that can be tricky. First, the credit is subject to not one, but two, phaseouts. Phaseouts mean that your payment will go down as your income goes up. And second, the IRS estimated the amounts due as advanced payments based on your 2019 or 2020 tax return, or information from the IRS Non-Filer tool.
That combination sets up some potentially complicated scenarios. If you made more or less money, added children, or changed your filing status, the needle could move on what you are actually due at tax time. Additionally, some taxpayers who opted out—like me—still received payments. And still other taxpayers claim they did not receive enough payments.
Remember: these payments are advances. When you file your 2021 return in 2022, you’ll figure the amount of credit you’re actually due. If the amount of your available credit is more than your advance payments, you can claim the remaining credit on your return—and you may be entitled to a refund. But the opposite is also true: You may have to pay back the extra if you received too much. The result is that your refund—if any—in 2022 could look different.
Tax Services Get Bundled
More than 55% of electronically filed tax returns were prepared by tax professionals. Many tax practitioners expect that proportion to increase as tax prep potentially grows more time-consuming and complicated with remote work, career moves, and other pandemic-related developments.
To help avoid surprises—like refund changes due to the advance child tax credit—many tax firms are introducing bundled or packaged services, including tax planning and advice, on a year-round basis. That means instead of paying one price at tax time, you may be paying an annual or monthly fee for regular consultations.
Tax professionals have increasingly embraced this concept because it can help everyone—from taxpayers to tax preparers—be ready at tax time. Having a bigger picture of what a tax return might look like reduces time scrambling for documents and repeated inquiries for forms—it could also mean less likelihood of missed income, deductions, or credits.
Plus, incorporating some proactive tax planning alongside reminders to take required minimum distributions or make estimated payments could save money or avoid an unexpected tax bill.
One of the easiest ways to chase missed income is form matching. In simple terms, the IRS compares what you report on your tax return to what is reported on an information form—like your Form W-2. If those amounts don’t match, and there’s no clear explanation, the IRS will ask for more information or, worse, send you a bill.
That’s one of the reasons the IRS believes that increased information reporting will result in more tax compliance.
And while the Biden administration’s proposal to require banks, credit unions, and other financial institutions to monitor deposits and withdrawals—and subsequently report—accounts that have balances of $600 or more during the year to the IRS is mostly dead, that doesn’t mean that IRS is giving up on reporting requirements.
Notably, beginning on Jan. 1, 2022, third-party payment networks like PayPal and Venmo must report business transactions totaling more than $600 to the IRS on Form 1099-K. Form 1099-K is traditionally used to report certain payments for goods and services paid by credit card or third-party merchants. A reportable payment transaction is a transaction in which a payment card—like a credit card—is accepted as payment or settled through a third-party payment network like PayPal.
As EY’s Debbie Pflieger noted, “This change will substantially increase the number of Forms 1099-K required to be filed with the IRS and furnished to recipients in early 2023.”
These reporting requirements may also mean that taxpayers may need to take steps in 2022 to ensure compliance. Platforms like PayPal and Venmo have made clear that they will require affected users to provide tax information, like a Social Security Number or Tax ID, to continue to accept payments for sales of goods and services during the year.
Expect similar demands for taxpayer information on cryptocurrency platforms. While some platforms, like Coinbase, already provide information about gains and losses to taxpayers, the infrastructure bill mandates some reporting. While the specifics, like the meaning of the word “broker” are still being debated—Treasury guidance is needed—the new law requires certain Form 1099-B and cost-basis reporting for digital assets like cryptocurrency and NFTs.
Just as with Form 1099-K, these reporting requirements won’t necessarily show up on an IRS form in 2022—they kick in beginning in 2024. But with the new law on the books, as well as an international clamor for more cooperation, don’t be surprised to see some platforms and brokers preparing for reporting by requesting verification of identification and tax information in 2022.
More Tax Services Go Digital
We’ve all grown increasingly comfortable with video conferences and calls using services like Zoom and Teams. But are tax services moving in that direction, too? If tax professionals on Twitter are to be believed, the answer is a resounding yes.
Tax practitioners have begun using services like Loom to record and share tax return information with taxpayers. It essentially replaces the need to come into the office—convenient at a time when most returns are filed electronically.
Even though many firms have been moving toward more virtual experiences for years, the pandemic has likely nudged tax practitioners and taxpayers in that direction. Chris Hervochon, CPA, CVA, of Hilton Head, SC, says that he started using video to review tax returns at the very end of the 2019 tax filing season—in 2020. Last year, he delivered a link to an explanatory recording with every tax return. Clients, he says, “love it” and the feedback has been overwhelmingly positive. The biggest issue, he says, is getting every client to watch the video.
That’s a problem with adapting any new technology. You may remember early resistance to electronic banking and reporting options. And yet today, you may well have your banking app on your phone. As more tax services go digital, the possibilities for taxpayers to communicate in different ways feel infinite.
IRS Speaks Your Language
There’s no doubt that our world is more global. In recent years, even the IRS has acknowledged the need to better communicate with taxpayers in a changing world.
Today, the IRS website is available in eight languages—English, Spanish, Russian, Vietnamese, Korean, Haitian Creole, Simplified Chinese, and Traditional Chinese—as is IRS Publication 17, Your Federal Income Tax.
And just a few days into 2022, National Taxpayer Advocate Erin M. Collins announced that the Taxpayer Advocate Service website is now available in Spanish. It is, the office explains, part of an ongoing effort by TAS to better serve all taxpayers. Expect those efforts to continue for the IRS and the TAS throughout 2022.
What Does This All Mean?
It may be tempting to dismiss some of these changes because they don’t currently apply to you. Maybe English is your only language. Maybe you always sign your return on paper—or you don’t use cryptocurrency. Maybe you’re not even sure what Venmo is.
While you don’t have to be familiar with every altcoin or virtual platform, it’s clear that the world is becoming more global and more digital. And tax authorities, tax professionals, and taxpayers are responding to those developments—some more quickly than others. No matter who you are, staying informed in an ever-changing tax world is critical.
This is a weekly column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.